Buy on Bankruptcy

Bryan Norcross: ‘You may not have realized it, but a historic minute in time will occur this coming Wednesday. For the one minute that it is 8:02 pm on Wednesday, February 20, 2002, the time, date, and year will read 20:02, 20/02, 2002. Okay, you have to use a 24-hour clock and the DD/MM convention that the rest of the world uses (where today is 20 Feb, not Feb 20). But still, it’s very cool and it can never happen again, unless we change our system of time so there are at least 30 hours in a day.’

☞ Not since October 1, 1001 at 10:01 am (and then again 12 hours later) did I feel so giddy. Looking forward to 9:12pm on December 21, 2112.

BUY ON BANKRUPTY?

Don Rudolph: ‘Have you noticed the panic selling of shares in companies that declare Chapter 11? Isn’t there almost always a nice, healthy bounce back off the bottom?’

☞ Often, but not ‘almost always,’ I think – and on some of them, the spreads become pretty wide (e.g., bid 15 cents if you’re selling, 20 cents if you’re buying), making this strategy an interesting thing to contemplate, but a tough one to do well with over the long run, I’d guess.

I’m sure there’s a retroactive study of this out there someplace – anybody have it? I’d be fascinated to know whether various anomalies actually make this a meaningful opportunity. These anomalies could include institutions forced to sell because of arbitrary rules against owning shares below a certain level . . . human nature, irrationally ‘throwing up one’s hands’ in response to the bankruptcy (and a strong preference for not seeing this junk on the brokerage statement every month) . . . and, of course, selling to establish a tax-loss.

AND SPEAKING OF ANOMALIES

Thanks to Brian Evans for this link to a recent Washington Post story (headlined: ‘The Compromise Effect’) that rounds up some of the best examples of money irrationality. It’s worth a read as entertainment . . . to challenge your own thinking, perhaps . . . and perhaps even to give you an idea or two of how to take advantage of the irrationality of others.